If you’ve followed the vanadium market over the last several years, you’ll know it’s undergoing a revolution. The market still has its solid base of demand from traditional uses for vanadium, such as:
But according to the 2017 US Geological Survey (USGS) report, Critical Mineral Resources of the United States, an entirely new primary use and demand for vanadium has now been established: the recent introduction of vanadium redox-flow batteries (VRBs) for large-scale energy storage.
Bloomberg New Energy Finance (BNEF) forecast that the global energy storage market will attract $1.2 trillion in investment between 2018 and 2040. Leading the way will be China, the US, India, Japan, Germany, France, Australia, South Korea and the UK. Developing countries, meanwhile, will also see rapid growth in energy storage due to remote areas being able to benefit from renewable energy generation combined with battery-based storage solutions.
Of even greater significance for the vanadium market, the energy storage sector will commission 1,288 gigawatts of new batteries by 2050 (source: BNEF). With each gigawatt representing enough energy storage to power 750,000 homes on average, that amount of new storage alone would be enough to power nearly 1 billion homes (i.e., 966,000,000 homes).
In turn, the push for more clean energy is forecast to attract $548 billion in investments to the battery sector by 2050, with 66% of that investment being at the grid level and 33% at the level of household and businesses behind-the-meter (source: BNEF).
New demand for vanadium is being driven by the rapidly growing demand for energy storage solutions at the grid level. The driving factor behind this growth is that renewable energy generation, from sources such as wind and solar, is intermittent depending on weather conditions.
Since renewables don’t always generate energy when it’s needed most, the current solution is to store the generated energy in batteries for discharge on an as-needed basis later.
With the forecast for wind and solar to deliver nearly 50% of world electricity generation by 2050, the batteries needed to store all that energy will only increase the overall demand for vanadium in such applications as vanadium redox-flow batteries (VRBs).
Energy storage represents a $13-billion market. According to The Economist, vanadium is ideally positioned to be a vital element in providing large, clean-energy VRB batteries to that market. The list of benefits VRBs bring to energy storage is long, with the most important including:
As a result, global interest and investment into VRBs is surging.
According to the USGS, worldwide VRB system installations are currently concentrated in China, Japan, North America and Europe. A report from ADS estimates that the VRB market will grow from $230.2 million in 2018 to $946.3 million by 2023 at a CAGR of 32.7%.
Examples of investment from China include their National Development and Reform Commission calling for the construction of multiple 100-megawatt (MW) VRBs to store wind and solar energy for later consumption via the grid. China is also constructing a 200MW VRB, which would make it the world’s most powerful battery, at twice the size of a lithium-ion battery installed by Tesla in Australia in late 2017.
The country is also building the world’s largest VRB gigafactory to produce 200MW batteries. The factory covers an area larger than 20 soccer fields. And with the trend toward vertical integration from raw material to final battery production, it is no surprise that battery manufacturers are motivated to establish long-term uptake agreements with vanadium suppliers.
By way of example, Beijing-based VRB manufacturer, VRB Energy, established a long-term agreement with Pangang Group Vanadium and Titanium Resources, a Chinese electrolyte supplier.
The total installed energy generation capacity of wind and solar has increased by 65-fold since the year 2000, and has more than quadrupled since 2010. That growth in energy generation capacity was only possible through massive investment; deployment of the world’s first terawatt of wind and solar required ~$2.3 trillion of investment over decades of time.
In comparison, BNEF estimates that capital expenditures on wind and solar generation will total ~$1.23 trillion from 2018 to 2022 alone. In turn, BNEF forecasts that wind and solar will generate 50% of the world’s energy by 2050.
According to the USGS, development of VRBs, with their large-scale storage capacity, could result in the increased use of wind, solar, and other renewable power sources since the challenge of their intermittent power generation would no longer be an issue. In turn, that increase of renewable energy use would result in the need for more VRBs, creating a positive cycle of reinforcement and growth for both sectors.
While demand from the energy storage market has the potential to have a bigger impact on the mining sector, the auto market’s shift to electric vehicles (EVs) also represents new and growing demand for vanadium.
According to the USGS, lithium-vanadium-phosphate batteries produce high voltages and high energy-to-weight ratios. The result is a type of battery that is ideal for use in EVs.
In a 2017 report, the USGS forecast for vanadium use in lithium batteries that year was for an increase to 1,700 metric tons, which would represent a 750% increase from 2012 levels.
On top of all the new and growing demand for vanadium already mentioned, there is unprecedented growth of traditional demand emerging from the steel and manufacturing sectors.
The traditional practice of including vanadium in the steel-making process enables the production of high-strength, low-alloy (HSLA) steels. HSLA steels are widely used for the construction of auto parts, buildings, bridges, cranes, pipelines, rail cars, ships, and truck bodies, including armor plating for military vehicles. In addition, HSLA steels are being used in the oil and gas industry more frequently to meet demand for pipelines with higher strength and greater toughness at low temperatures.
Fortunately for the vanadium market, attempts to replace vanadium with other mineral commodities when creating HSLA steels “requires significant technical adjustments to the steel production process to ensure that product specifications and quality are not compromised” (source: USGS).
Vanadium is also irreplaceable in applications within the aerospace industry due to vanadium-titanium alloys having the best strength-to-weight ratio of any engineered material yet discovered. Recently, however, the level of traditional vanadium demand has begun undergoing its own revolution due to unprecedented country-level legislation and growth.
China – which makes 50% of the world’s steel, and which the USGS projects will represent strong demand for vanadium in steel production over the next 10 to 20 years – recently established new rules requiring steel used in construction to be stronger, in particular, increasing rebar strength to make buildings more earthquake-proof. These new rules will require China to use more vanadium in the steel-making process.
According to The Economist, experts are projecting that China’s new rules alone will increase vanadium demand by 18% in 2018-2019 over levels from 2017. At the same time, increased vanadium demand will also come from Japan, which recently legislated increased vanadium content in steel rebar to ensure their steel matches the quality of other major steel-producing countries.
Additional significant vanadium demand for steel production will also come from India’s growing steel production, which is projected to almost double due to the country’s rapid rate of industrialization (source: USGS).
As outlined above, the following drivers are all combining to support and increase vanadium demand:
Fortunately, enough vanadium exists in the ground to meet demand.
But with no new vanadium mines expected to come online within the next 5 years, the increasing level of demand is expected to result in supply shortfalls, which would drive up the price of vanadium.
According to industry analyst TTP Squared, the vanadium market is expected to experience a supply deficit of ~23,000 tonnes by 2025 due to divergent vanadium supply and demand dynamics.
While vanadium is extracted from several different types of mineral deposits and from fossil fuels, the world’s principal source of vanadium is VTM deposits (vanadiferous titanomagnetite).
Between 80 to 85% of the world’s supply of vanadium is derived from mined ore from VTM deposits (i.e., either directly from deposits or from steelmaking slags produced by processing the ores).
Venture Vanadium’s Vanadium Project in eastern Quebec, Canada, represents a VTM deposit.
According to the USGS, since most of the world’s vanadium currently comes from VTM deposits, it is likely that additional vanadium resources will come predominantly from VTM deposits and districts. The full extent of resources located in VTM deposits has not yet been fully evaluated, especially due to VTM deposits having been identified only recently in various locations, including Canada.
The USGS also notes:
“With the anticipated increase in demand for vanadium and the limited supply, maintaining a constant supply would likely mean that new sources of vanadium would need to be identified and the extraction of vanadium from currently defined sources would need to be optimized. Many future resources are likely contained within VTM deposits in unexplored regions.” (source: USGS, Critical Mineral Resources of the United States, 2017)
Examples of threats to a constant supply of vanadium include an iron and vanadium mine in South Africa that remained closed in 2017, which left the country with only 2 major vanadium producers, forcing the market to acquire feedstock elsewhere. In China, meanwhile, some vanadium producers were shut down in 2017 – some temporarily, some permanently – due to increased environmental inspections.
Despite the inevitability of threats to supply chains, major investors continue to back vanadium, including 2 entities at the highest levels of global investment, both with particular interest in the emerging battery sector:
In light of the threats to potential supply disruptions, investors and vanadium sector partners understand that a mining project cannot succeed unless its location is in a jurisdiction with established and favorable mining laws. Which is why North America, and Canada in particular, is of special interest when it comes to new investment in vanadium exploration and production (see the Region section for more details).
The last 2 years has seen the price of vanadium surge by over 800%, driven by China’s demand for stronger steel and the fervor related to alternative battery metals, specifically the use of vanadium in VRB batteries.
By way of comparison, vanadium’s price increase has been faster than that of other battery metals, including cobalt, copper and nickel.
Looking forward, the economic analyst firm, Hallgarten & Co., forecasts that prices for vanadium will rise in coming years. But perhaps the best forecast measure is to weigh rising demand for vanadium from the energy storage, steel and manufacturing sectors against the urgent need for increased supply. With the current forecast being for a supply shortage, it would be expected that the price of vanadium would increase.
The good news is that, as The Economist concluded in mid-2018, higher vanadium prices would not make vanadium-powered VRBs prohibitively expensive since there is enough global supply to effectively create whatever amount of production is needed over time. And as mentioned earlier, in the steel-making and manufacturing sectors, the likelihood of replacing vanadium with other mineral commodities for the production of HSLA steels or titanium alloys is complicated and cost prohibitive.
While increased vanadium prices would obviously be favorable for all vanadium producers in general, investment industry experts point out that shares in development-stage mining companies offer greater exposure to increases in vanadium prices. The reason for this effect is that a smaller company’s share price can appreciate more over a shorter period of time when compared to a large producer.
Source references used for this section’s content include:
US Geological Survey (USGS), 2017
Bloomberg New Energy Finance (BNEF), 2018
The Economist, 2018